If you want your business to succeed financially, now and in the future, it’s essential to plan ahead. It’s one thing to know where you want your company to be, but it’s another thing to know how you’ll get there and what role your finances will play on that journey.
A financial strategy will help your company achieve its goals and ensure its long-term success for years to come. Let’s find out what a financial strategy is, why it’s a good idea for your business and how to build your own.
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What is a Financial Strategy?
A combination of financial and strategic planning, a financial strategy is essentially a roadmap that evaluates a company’s current financial resources, costs and budget and how these can be leveraged to support the company in achieving its goals.
A financial strategy helps business owners outline their priorities for their company and make informed decisions on financial matters. It will also mitigate risks that might affect these, especially in the unpredictable world of business, where unprecedented change could be lurking around every corner.
Benefits of a Financial Strategy
It’s easy to make poor decisions in life when you don’t have a clear goal in mind. The same is true when it comes to financial matters. That’s where a financial strategy can help you focus on what’s important to the success of your business and what you need to do to achieve it.
Having a plan for your finances means you won’t be tempted to spend on services or equipment that might not help you reach your goals. For example, if some new fancy software won’t help you achieve your ambitions, there’s no point in buying it. This will ultimately save you money in the long run.
The Components of a Financial Strategy
Several components can go into a financial strategy, but some of the common ones are:
1. Financial Performance
Financial statements, like balance sheets and cash flow statements, can be examined using quantitative measures, like financial ratios, to identify the financial position of a company at a given time.
These ratios could be based on areas like sales, ROI or profits, and they can be compared to those from an earlier time period, helping to highlight any change in the financial position.
2. Expense Outgoings
Looking at the operational cost of running your business, as well as how much is spent on standard business activities (like annual events or advertising) will help you distinguish what is essential and what you could potentially reduce or do without entirely. Planning for future expenses, like tax rate increases, ensures your business is financially prepared to face any future costs.
Read our top tips on how to create a responsible expenses culture in your business here.
3. Investment Planning
Incorporating investment decisions into a financial strategy is a wise move, although businesses should make careful decisions around the total amount of assets held in an enterprise, the make-up of these assets and the risk in investing them.
A company may have a few capital expenditure proposals in place, and the financial strategy should supply a technique for choosing the proposal that best suits the company’s needs and goals.
4. Working Capital Management
Working capital refers to the funds needed for the day-to-day operations of a company, and its ability to cover its current liabilities with current assets. Working capital must be managed carefully to ensure you can run your business effectively.
5. Cash Flow Projection
It’s a good idea to predict your cash flow for a full year so you can efficiently plan ahead and spot any potential cash flow problems before they happen. Predicting your cash flow gives you an idea of how much money might be left over at the end of a month, quarter or year.
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5 Steps To Build A Financial Strategy
Building a financial strategy for your business might seem daunting, but it doesn’t have to be. You don’t have to be a financial expert to create a financial strategy, and it doesn’t have to be complicated. Here’s our step-by-step guide for building your own financial strategy.
1. Define Your Goals
When it comes to financial matters, having clear and attainable goals in mind will help you make better decisions for your company. Consider both the long-term and short-term needs of your business. Identifying your target market will help you decide where you should focus your efforts in order to achieve your goals.
2. Set A Budget
A budget is a tool which you can use to help you track your income and expenses, allowing you to make informed decisions about how to distribute your resources. Setting a budget will let you track your spending and make sure you’re staying on track.
Read our blog to find out why business budgeting is so important here.
3. Be Flexible
Although having a solid financial strategy in place will stand you and your company in good stead, we live in uncertain times, so an element of flexibility is advisable. Reviewing your expenses regularly will allow you to make quick adjustments if necessary. Keeping an eye on your cash flow will also ensure you have sufficient working capital for your short-term needs.
4. Mitigate Risk
It’s impossible to plan for every single risk that might affect your business, but it is possible to identify major risks, such as cyber-attack or supply chain disruption. Make sure you have financial contingencies in place to reduce the impact these risks may have on your company.
5. Seek Professional Advice
With something as important as your financial strategy, seeking professional guidance is absolutely an option. A finance professional will help you build a tailored financial strategy that’s unique to your business. They will consider the factors that affect your company or could do in the future, to help you develop a plan that meets your needs.
To sum it up, creating a financial strategy doesn't have to be daunting when you follow the above tips.
